Weinberg & Company

Simply Stated Newsletter – January 2019

By January 15, 2019 No Comments

ACCOUNTING:

Financial Reporting Changes Actively Considered–

On December 18, 2018 the SEC published a request for comment soliciting input on “the nature, content, and timing of earnings releases and quarterly reports required by reporting companies.”

This was a response to an earlier tweet by President Trump suggesting the SEC look into paring back the financial reporting requirements of public companies-perhaps doing away with quarterly reports entirely.

 

“In speaking with some of the world’s top business leaders I asked what it is that would make business (jobs) even better in the U.S.,” he tweeted. “‘Stop quarterly reporting & go to a six month system,’ said one. That would allow greater flexibility & save money. I have asked the SEC to study!”

 

The request for comment solicits public input on how the Commission can reduce burdens on reporting companies with regard to quarterly reporting while maintaining, and in some cases enhancing, disclosure effectiveness and investor protections. In addition, the Commission is seeking comment on how the existing periodic reporting system, earnings releases, and earnings guidance, alone or in combination with other factors, may foster an overly short-term focus by managers and other market participants.

“There is an ongoing debate regarding the effects of mandated quarterly reports and the prevalence of optional quarterly guidance,” said SEC Chairman Jay Clayton. “Our markets thirst for high-quality, timely information regarding company performance and material corporate events. We recognize the importance of this information to well-functioning and fair capital markets. We also recognize the need for companies and investors to plan for the long term.  Our rules should reflect these realities. I look forward to receiving thoughtful comments as we think about ways to encourage long-term investment in our country.”

 

Clayton Outlines SEC Priorities

In year-end testimony before the U.S. Senate Committee on Banking, Housing and Urban Affairs, SEC Chair Jay Clayton outlined SEC priorities for 2019 and proposals “on the horizon,” including:

  • A proposal to amend the definition of “accelerated filer” (triggering SOX 404(b) attestation);
  • Extension of the test-the-waters accommodation to non-EGCs;
  • Rulemaking to expand Regulation A eligibility to public reporting companies;
  • A release soliciting input on reducing compliance burdens on reporting companies with respect to quarterly reports;
  • A concept release on the exempt offering framework;
  • Changes to Rule 701 to address the comments received on the Commission’s concept release on the exemption;
  • Improvements to the proxy process;
  • Regulation of proxy advisory firms;
  • Revisions of the offering rules for BDCs as required by the Small Business Credit Availability Act; and
  • Revisions of the offering rules for closed-end funds as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act.

Clayton also noted 2018 accomplishments, including amendments to the smaller reporting company definition, disclosure simplification amendments, and proposed changes to financial disclosures for guarantors.

 

Reg A Exemption Expanded 

The SEC adopted final rules to allow certain reporting companies to rely on the Regulation A exemption from registration for their securities offerings.

“Regulation A provides an exemption from registration under the Securities Act for offerings of securities up to $50 million in a 12-month period,” said SEC Chair Jay Clayton. “The amended rules will provide reporting companies additional flexibility when raising capital.”

Regulation A was not available to Exchange Act reporting companies, but the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act required the Commission to revise Regulation A — enabling companies that are subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 to use Regulation A. The amendments also permit such reporting companies to meet their Regulation A ongoing reporting obligations through their Exchange Act reports.

 

PCAOB Tightens Rules for Auditing Estimates

The Public Company Accounting Oversight Board (PCAOB) has adopted stricter standards for auditing accounting estimates. The Board also strengthened requirements for when auditors use the work of specialists in an audit.

Accounting estimates, such as fair-value measurements, often involve subjective assumptions by company management and are more susceptible to bias. The new rules, if approved by the SEC would take effect for audits of financial statements for fiscal years ending on or after December 15, 2020.

Auditing Standard 2501, Auditing Accounting Estimates, Including Fair Value Measurements, provides a single standard that emphasizes auditors’ responsibility to apply professional skepticism when auditing accounting estimates. It requires auditors to address potential management bias and provides more specific direction on auditing fair values of financial instruments that are based on information from third-party sources.

The amendments related to the work of specialists strengthen the requirements for evaluating the work of a company’s specialist, whether the specialist is employed or engaged by the company. The amendments also require a supervisory approach by the auditor when working with specialists the auditor either employs or engages.

 

IRS: Open for Business, Many Happy Returns

There will be no delay in the start of the tax season, and the IRS will begin processing tax returns on January 28. It also will issue refunds on a regular schedule.

This is in contrast to the 2011 government shutdown, when the Office of Management and Budget (OMB) had directed the IRS not to pay out tax refunds during “a lapse in annual appropriations.” This time the OMB has green-lighted the tax refunds based on their uncovering of Treasury documents where a long ago IRS determination said that refunds fall under permanent, indefinite appropriations.

There also was concern that, faced with implementing the complex Tax Cuts and Jobs Act that passed December 2017, the IRS would not be ready to start this year’s tax season on time. Credit for that goes to IRS employees, according to IRS Commissioner Chuck Rettig. “IRS employees have been hard at work over the past year to implement the biggest tax law changes the nation has seen in more than 30 years,” he said.

 

Request to Suspend Tax Penalties

The American Institute of CPAs (AICPA) and the National Conference of CPA Practitioners are separately asking the Internal Revenue Service to refrain from imposing underpayment and underwithholding penalties on taxpayers in response to some extensive changes in the Tax Cuts and Jobs Act (TCJA), reports Accounting Today.

In a letter to IRS Commissioner Charles Rettig and other top officials at the IRS and Treasury, AICPA Tax Executive Committee Chair Annette Nellen wrote: “Taxpayers faced substantial uncertainties relating to how to determine the amount of their actual tax liability for the 2018 taxable year as regulations addressing many of the statutory changes made by the TCJA were not yet available or were released late in the year as proposed regulations.”

Sen. Ron Wyden, D-Oregon, the ranking member of the Senate Finance Committee, also wants the IRS to suspend the potential penalties. Wyden sent his own letter last week to Rettig expressing concern that tens of millions of taxpayers would face such penalties. In that letter, Wyden cited a report from the Government Accountability Office estimating that nearly 30 million taxpayers could have underwithheld their taxes last year.

MONEY TALKS

So Close

Though it came in like a lion, it went out like a lamb. Erratic markets and fear of a trade war weighed heavily by year end, depriving 2018 from setting an all-time record for M&A deals. The year ended as the third most active ever – with $3.8 trillion in announced deals. Only 2007 and 2015 were more active.

 

A Better Credit Score

Credit-reporting firm Experian said that some consumer cellphone and utility payments will soon be factored into their credit reports, a move expected to boost the credit scores of millions of people and increase loan approvals. The initiative is expected to improve credit scores especially for those with no or low scores because they have a thin history of borrowing from banks or other major lenders.

Also, Experian will partner with Fair Isaac Corp., the creator of the FICO credit score, in rolling out a new scoring system that includes data on how consumers manage the cash in their checking, savings and money-market accounts. Called the Ultra FICO Score, it too will increase the number of approvals for credit cards and personal loans.

Of U.S. consumers with FICO credit scores, a record 58.2% have a score of 700 or higher on a scale that tops out at 850. The average FICO score is at a record 704. Lenders may have different cutoffs, but Experian considers scores under 670 subprime, reports the Wall Street Journal.

Simply Stated Briefs

Hold my Beer

Freshman Rep. Joe Cunningham (D-S.C.) was stopped by security from entering the House of Representatives when he attempted to bring in a six-pack of local South Carolina beer for fellow lawmaker Peter DeFazio of Oregon.

Cunningham tweeted, “Making friends when you’re a freshman is hard and I thought I’d grease the skids with some Lowcountry beer. Thankfully @RepPeterDeFazio got it in the end! Can I join the beer caucus now?”

The “beer caucus” is a real thing. More formally called the House Small Brewers Caucus, it was started in 2007 and boasts 234 bipartisan members from 43 states. Co-chaired by Rep. DeFazio, it was responsible for getting the Craft Beverage Modernization and Tax Reform Act included in the tax reform law passed in December 2017. The act cuts federal taxes on alcohol producers. More info at: Brewers Association

 

“Password” is Not a Good Password

Each year, SplashData (the developer of SplashID) compiles a list of millions of stolen passwords and sorts them in order of popularity. The top 10 most commonly used stolen passwords in 2017 (along with our comments) were:

  1. 12346 [Great idea skipping a number like that… Oh, you can’t count?]
  2. password [Now that’s just plain lazy]
  3. 12345678 [Tough one to remember- better write it down and put it under your keyboard]
  4. qwerty [Let’s hope the hacker can’t use a keyboard]
  5. 12345 [Hey, everyone knows you need more than five digits to be secure]
  6. 123456789 [Because hackers can’t count to 10?]
  7. letmein [Something a hacker won’t need to ask twice]
  8. 1234567 [Ok, this is getting redundant]
  9. football [Fumble]
  10. Iloveyou [..and I love your personal data]

To see the complete list click: SplashData’s 100 most commonly used stolen passwords

WEINBERG NEWS

An Audited Legacy of Quality

It’s become a lot easier to choose the best audit firm. That’s because the Public Accounting Oversight Board (PCAOB) conducts periodic inspections of all audit firms and publishes its reports online. For all to see.

Yes, we get audited too.

Weinberg & Company is consistently at the very top when it comes to the quality of our work– just check our legacy of stellar inspection reports.

We thought we were building a leading, international accounting firm by providing Big 4 expertise, delivered with personal service.

Turns out we were also building “An Audited Legacy of Quality.”

DISCLAIMER:
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

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